Reallocation Of Market Share Research Articles

The Impact of Access to Intermediate Inputs on Export Margins: Firm-Level Evidence from the Regression Decomposition Approach

This paper analyzes how export margins responded to an intermediate input supply shock caused by the 2020 lockdown in China. We use regression decomposition with triple and quadruple difference-in-differences models to identify causal impacts and mitigate potential heterogeneity in transaction-level customs data from the Bangladesh apparel manufacturing industry. The triple difference estimate shows that the average export value per firm–product–destination combination declined by approximately 65%, leading to a decrease in overall exports of woven apparel from Bangladesh. The input supply shock also adversely affected the subgroups of firms across various firm-level characteristics along the intensive margin. Moreover, the export market share decomposition reveals that the shock significantly affected intensive margins by decreasing incumbents’ market allocation by 9%. An equivalent increase in extensive margins led to a readjustment in the market allocation, leading to fewer market leavers and slightly more new market entrants. Our results indicate that Bangladesh’s exports mostly decreased due to the smaller quantities of products exported rather than there being fewer firms, destinations, or products involved in export trade. There were significant market share reallocations that occurred after the Chinese input supply shock. An appropriate policy stance is required for sustainable export sector growth strategies, which will enhance the country’s defense against potential future shocks and foster the achievement of sustainable development goals (SDGs) in Bangladesh.

The pro-competitive effects of trade agreements

How does trade policy affect competition? Using the universe of product exports by firms from eleven low and middle income countries, we document that tariff reductions under trade agreements have strong pro-competitive effects — they encourage entry and reduce the (tariff exclusive) price-cost markups of exporters. This finding, that markups fall with tariff cuts, contradicts a core prediction of standard oligopolistic competition models of trade. We extend a workhorse international pricing model of oligopolistic competition to include multiple countries and a rich preference structure. Our preference structure allows for fierce competition among firms from the same country and less intense competition among firms from different countries. We show a firm’s optimal markup after a tariff cut can rise or fall depending on the parameters of the preference structure and tariff-induced reallocation of market share among firms and across countries.

How do foreign-owned suppliers affect economic performance? Evidence from Italian manufacturing firms

This paper examines how the presence of foreign-owned suppliers (Inward FDI in intermediate good sectors, called input IFDI) affects both the productivity and outward FDI propensity of domestic firms. Using data from Italian manufacturing firms over the period 2005–2012, we find that the degree of a firm's involvement in innovation activities is crucial. More specifically, input IFDI, on average, boosts aggregate productivity in sectors where the majority of firms are involved in innovation activities. These industry productivity gains are due to efficiency improvements within firms, as well as the reallocation of market shares towards more efficient firms. Conversely, in sectors where few firms are involved in innovation activities, input IFDI, on average, leads to productivity losses within firms, entailing larger market share reallocation towards the best performing firms. Our findings further demonstrate that in those sectors with a high degree of innovation activity, input IFDI increases domestic firms' propensity to invest abroad, whereas the opposite is true for the other sectors.

Employment, Skill Upgrading, and International Trade: The Case of Sanctions Against Iran

This paper examines the effects of the trade sanctions imposed on Iran in 2010 on employment, demand for skilled labor, and wages by using industrial manufacturing data that cover 10 years before and 5 years after the sanction, 28 provinces, and more than 200 different industries. The results regarding the employment impact of the trade sanctions show that there was remarkable job destruction, most notably in domestically active industries, during the sanction period. The decomposition of the increase in the aggregate demand for skilled labor sheds light on the fact that it comes from labor reallocation within industries, not from across industries. The trade sanctions adversely affected both exporters' and non-exporters' total-factor productivity; however, non-exporters endured a larger negative impact. This induced biased technological change between exporters and non-exporters, which resulted in a market share reallocation towards exporters. As a result, the demand for skilled production workers increased which results in a rise in the real average wage, whereas the demand for non-production workers decreased which results in a fall in the real average wage during the sanction years. This opposite effect is explained by the elasticity of substitution between skilled and unskilled workers.

Cheap Talk, Monitoring and Collusion

Many collusive agreements involve the exchange of self-reported sales data between competitors, which use them to monitor compliance with a target market share allocation. Such communication may facilitate collusion even if it is unverifiable cheap talk and the underlying information becomes publicly available with a delay. The exchange of sales information may allow firms to implement incentive-compatible market share reallocation mechanisms after unexpected swings, limiting the recourse to price wars. Such communication may allow firms to earn profits that could not be earned in any collusive, symmetric pure-strategy equilibrium without communication.

Aggregate Productivity Growth and Firm Dynamics in Korean Manufacturing 2007–2017

We study aggregate productivity growth of the Korean manufacturing industry for the 2007–2017 period after the Great Recession. We find the nature of such growth was quite different for two measures of productivity. For labor productivity, most of growth comes from productivity changes among surviving firms while, for TFP, most of the productivity growth comes from that of new entrants. We observe interesting industry dynamics, as exiting firms contributed positively to aggregate productivity growth, which suggests that the market had gradually eliminated firms of lower productivity in this period. Using the dynamic Olley and Pakes (1996. The dynamics of productivity in the telecommunications equipment industry. Econometrica, 64, 1263–1298.) decomposition, we find that a substantial productivity growth after the Great Recession was due to market share reallocations between firms, but this between-firm contribution has reduced since the recovery. Our industry sector level analysis also demonstrates that there has been heterogeneous productivity growth patterns and components across manufacturing sectors. Finally, we speculate that the wage level also plays a role as a moderating or accelerating factor for different productivity growth paths among surviving, entering, and exiting firms.

Market Power and Labor Share

Secular trends in market power and labor share have important implications for inequality and allocative efficiency. Studying them requires comprehensive and detailed firm-level data spanning several decades. For that purpose, we leverage a novel and detailed database on the universe of French firms between 1984 and 2016, that we use to document a rise in concentration in France since the beginning of the 1990s. Despite a relative stability of the aggregate labor share, we show that firms with lower labor shares have been gaining market shares. As low labor share firms also tend to be larger, this market share reallocation has been stronger in industries where concentration increased the most. We rely on markups as proxies of firm-level market power, and on a flexible production function that allows the identification of firm-specific output elasticities and markups. We find that the markup of the typical firm has decreased, but the reallocation of market shares toward larger firms contributed to an increase of the aggregate markup. Finally, we show how taking into account reallocation across firms is essential to understand how the aggregate market power evolution has shaped the dynamics of the aggregate labor share in France.

Aggregate Productivity Growth and Firm Dynamics in Korean Manufacturing 2007-2017

English Abstract: We study aggregate productivity growth of the Korean manufacturing industry for the 2007-2017 period. We find that the nature of such growth was quite different for two measures of productivity. For labor productivity, most of growth comes from productivity changes among surviving firms. On the other hand, for TFP, most of the productivity growth comes from that of new entrants in recent years. Our work illustrates the different nature of two productivity measures in terms of their growth paths. We also show interesting industry dynamics for both productivity measures, as exiting firms contributed positively to aggregate productivity growth with increasing trends, which suggests that the market had gradually eliminated firms of lower productivity. Using the dynamic Olley and Pakes (1996) decomposition, we also find that for both productivity measures, a substantial productivity growth after the 2008 global financial crisis was due to market share reallocations between firms, but this between-firm contribution has somewhat slowed or been decreasing since then. Our industry sector level study also shows that there has been fundamentally different heterogeneous productivity growth patterns and components across manufacturing sectors. Finally, we find that the wage level also plays a role in moderating or as an accelerating factor for different productivity growth paths among surviving, entering, and exiting firms. We find that higher wage groups had disproportionately higher entry and exit rates, and that the contributions of these industry dynamics to aggregate productivity growth were largest for the highest wage group while the productivity growth from the between firm component was substantially higher for lower wage groups. Therefore, we find that not only a timely change in input and output, but also in the wage, is a necessary ingredient for the pace and magnitude of reallocation to be effective in aggregate productivity growth.

The Rise of Market Power and the Macroeconomic Implications*

Abstract We document the evolution of market power based on firm-level data for the U.S. economy since 1955. We measure both markups and profitability. In 1980, aggregate markups start to rise from 21% above marginal cost to 61% now. The increase is driven mainly by the upper tail of the markup distribution: the upper percentiles have increased sharply. Quite strikingly, the median is unchanged. In addition to the fattening upper tail of the markup distribution, there is reallocation of market share from low- to high-markup firms. This rise occurs mostly within industry. We also find an increase in the average profit rate from 1% to 8%. Although there is also an increase in overhead costs, the markup increase is in excess of overhead. We discuss the macroeconomic implications of an increase in average market power, which can account for a number of secular trends in the past four decades, most notably the declining labor and capital shares as well as the decrease in labor market dynamism.

Intermediate Imports, Institutional Environment, and Export Product Quality Upgrading: Evidence from Chinese Micro-Level Enterprises

ABSTRACT Based on matched data from the Chinese industrial enterprise database and General Administration of Customs (GAC) database for 2000–2013, this paper examines export manufacturers in the context of significantly varying institutional environments to investigate how intermediate imports and the institutional environment affect export product quality. The results show that, first, intermediate imports affect product quality through four channels: the competition effect, knowledge spillover effect, intermediate quality effect, and intermediate diversification effect. Second, improvement in the institutional environment has a direct and positive impact on product quality, as well as strengthening the effect of intermediate imports; in this sense, the two factors are complementary in influencing market share reallocation. Third, the investigation of the import duration impact on product quality from dynamic perspectives shows a U-shaped correlation. This paper provides a theoretical and practical basis for strengthening the international competitiveness of China’s export products and improving the regional institutional environment.

Allocative Efficiency and Finance

This paper studies the effect of bank lending shocks on aggregate labor productivity. Exploiting a unique administrative dataset covering the universe of Italian manufacturing firms between 2000 and 2015, we apply the Melitz and Polanec (2015) decomposition at the 4-digit industry level to distinguish the contribution to aggregate productivity growth of: changes in surviving firms’ average productivity, market share reallocation among surviving firms, and firm entry and exit. We estimate the impact of credit shocks on each of these components, using data from the Italian Credit Register to construct industry-specific exogenous credit supply shocks. Only for the 2008-2015 period, we find that a tightening in the supply of credit lowers average productivity but increases the covariance between market share and productivity among incumbents, thus boosting the reallocation of labor. We find no significant effects of credit supply shocks on the contribution made by firm entry and exit. We find that the effects of negative credit shocks on average productivity and reallocation are concentrated in industries with a lower share of tangible capital and collateralized debt.

Trade Liberalization, Market Share Reallocation, and Aggregate Productivity: The Case of the Indonesian Manufacturing Industry

We investigate how trade liberalization affects aggregate productivity growth, focusing on market reallocation as well as within‐firm productivity improvement. To this end, using Indonesian plant‐level data from 1993 to 2005, we estimate the plant‐level impact of trade liberalization focusing on productivity, output, and the probability to exit. Then, using the simple dynamic simulation method, we calculate the likely impact if tariff rates remain constant in the initial period. Comparing the actual and counterfactual scenarios, our results show that although within‐plant productivity improvement through tariff reduction has a sizable impact on aggregate productivity growth, the contribution of market share reallocation is less significant.

GREASE OR SAND THE WHEEL? THE EFFECT OF INDIVIDUAL BRIBES ON THE DRIVERS OF AGGREGATE PRODUCTIVITY GROWTH

The Asian paradox suggests a net grease-the-wheel effect of corruption. Under the assump-tion of diminishing returns to bribes, going beyond the single-representative-firm assumption,we argue that the grease and sand-the-wheel effects are likely to co-exist among a large numberof firms, and that the industrial effect of corruption depends on the productivity drivers that fuelfirm’s dynamics. We decompose Indonesian manufacturing labor productivity growth whilecontrasting and comparing the contributions of no-, low- and high-bribing firms over the period1975-94. We confirm the coexistence of grease and sand-the-wheel effects. Industrial produc-tivity gains stem first from the net entry of non-corrupted firms, evidencing a sand-the-wheeleffect. Market share reallocation from low to high productivity growth incumbents paying lowbribes is the second source of productivity growth, pointing at a grease-the-wheel effect. Intra-plant productivity growth is overall negative and largely attributable to high-corruption plants,suggesting a sand-the-wheel effect.Keywords: corruption, bribery, productivity

GREASE OR SAND THE WHEEL? THE EFFECT OF INDIVIDUAL BRIBES ON THE DRIVERS OF AGGREGATE PRODUCTIVITY GROWTH

The Asian paradox suggests a net grease-the-wheel effect of corruption. Under the assump-tion of diminishing returns to bribes, going beyond the single-representative-firm assumption,we argue that the grease and sand-the-wheel effects are likely to co-exist among a large numberof firms, and that the industrial effect of corruption depends on the productivity drivers that fuelfirm’s dynamics. We decompose Indonesian manufacturing labor productivity growth whilecontrasting and comparing the contributions of no-, low- and high-bribing firms over the period1975-94. We confirm the coexistence of grease and sand-the-wheel effects. Industrial produc-tivity gains stem first from the net entry of non-corrupted firms, evidencing a sand-the-wheeleffect. Market share reallocation from low to high productivity growth incumbents paying lowbribes is the second source of productivity growth, pointing at a grease-the-wheel effect. Intra-plant productivity growth is overall negative and largely attributable to high-corruption plants,suggesting a sand-the-wheel effect.Keywords: corruption, bribery, productivity

Evolving competition between Hong Kong and Shenzhen ports

Shenzhen Port (SZP), once a negligible local port, has risen dramatically to a world-leading container port and an “equal” player with Hong Kong Port (HKP). Will this market share reallocation continue, or will equilibrium be eventually realized for HKP to prosper continuously? We examine the relationship between these two ports to answer this question. We propose a new transformation method to describe the growth of container cargo transport demand, define the quantitative measures of the competition relationship and port competitiveness, and present a rigorous analytical framework with econometric tests and models to understand the true relationship between HKP and SZP. Direct empirical tests suggest that SZP complements HKP; however, the two ports exhibit strong competition when the effect of demand growth is excluded. Considering transshipment separately, we find that the impact of SZP on HKP is negative in transshipment but complementary in direct shipment. We may conclude that HKP does not affect SZP, whereas SZP has competitive power over HKP. These results are consistent with the findings of some previous theoretical studies.

Supplier responses to Walmart's invasion in Mexico

This paper examines the effect of Walmart's entry into Mexico on Mexican manufacturers of consumer goods. Guided by firm interviews that suggested substantial heterogeneity across firms in how they responded to Walmart's entry, we develop a dynamic industry model in which firms decide whether to sell their products through Walmex (short for Walmart de Mexico), or use traditional retailers. Walmex provides access to a larger market, but it puts continuous pressure on its suppliers to improve their product's appeal, and it forces them to accept relatively low prices relative to product appeal. Simulations of the model show that the arrival of Walmex separates potential suppliers into two groups. Those with relatively high-appeal products choose Walmex as their retailer, whereas those with lower appeal products do not. For the industry as a whole, the model predicts that the associated market share reallocations, adjustments in innovative effort, and exit patterns increase productivity and the rate of innovation. These predictions accord well with the results from our firm interviews. The model's predictions are also supported by establishment-level panel data that characterize Mexican producers' domestic sales, investments, and productivity gains in states with differing levels of Walmex presence during the years 1994 to 2002.

Monopolistic competition: CES redux?

We study the competitive and reallocation effects of trade opening in monopolistic competition. To this purpose, we generalize the Melitz (2003) setup with heterogeneous firms and fixed and variable trade costs beyond the CES to the case of additively separable utility functions. We find that extensive margin (Melitz-type selection) effects are robust to relaxing the CES assumption. Intensive margin effects (market share reallocations across inframarginal firms) and competitive (markup) effects are instead fragile. An important implication is that measured productivity gains from trade opening are no longer ensured with non-CES preferences. We discuss our results in the light of alternative setups featuring non-additive preferences, strategic interaction and consumers' preference for an ideal variety.

Heterogeneous multinational firms and productivity gains from falling FDI barriers

This paper quantitatively assesses the impact of falling foreign direct investment (FDI) barriers on individual firms and its implications for intra-industry reallocation and aggregate productivity. We calibrate the firm-heterogeneity model of Eaton et al. (Econometrica 79(5):1453–1498, 2011) to match micro-level data on Japanese multinational firms facing fixed and variable costs of foreign production. We demonstrate that the calibrated model can be used to replicate the entry and sales patterns of Japanese multinationals. Counterfactual simulations show that declining FDI barriers lead to a disproportionate expansion of foreign production by more efficient firms relative to less efficient firms. A hypothetical 20 % reduction in FDI barriers is found to generate up to a 26.8 % improvement in industry-level productivity through global market-share reallocations within the industry. Compared with fixed entry barriers, reallocation effects and productivity gains are larger for a reduction of variable costs of foreign production.

Financial Crisis and Productivity Evolution: Evidence from Indonesia

AbstractWe examine how the productivity of different industries changes over the course of a financial crisis by exploiting cross‐firm, within‐industry differences in productivity resulting from the Asian financial crisis of 1997. We show that the crisis coincided with dramatic changes in productivity and that many of these changes were sustained in the long run. In particular, an increasing number of industries experienced decreases in average firm productivity during the crisis and did not recover. Further, we find that changes in industrial productivity in the recovery period are driven not by increases in the productivity of existing firms, but rather by the entry of new firms and changes to the reallocation of market share. Finally, we find that foreign exporters' productivity was the least impacted by the crisis, suggesting that only access to alternate forms of both capital and international markets can help to smooth investment and maintain productivity over a financial crisis.

Does input trade liberalization boost downstream firms' exports? Theory and firm-level evidence

We analyze the impact of input tariffs on the export status and export performance of heterogeneous processing firms. Using a theoretical model with downstream firms exhibiting different levels of productivity, we show that lower input tariffs may increase the export sales of high-productivity firms at the expense of low-productivity firms and may decrease the probability of firms entering foreign markets. We compare the predictions of the theoretical model with firm-level data from the French agrifood sector by developing a two-stage estimation procedure that uses an equation for selection into export markets in the first stage and an export's equation in the second stage. The liberalization of agricultural trade appears to favor the reallocation of market share from low- to high-productivity agrifood firms. In addition, our results suggest that, whether lower input tariffs increase total export sales (and jobs), a large fraction of the least productive exporting firms may lose from an additional decrease in agricultural input tariffs.